The unemployment report occupies a unique position as a bit of a lagging indicator (especially when it comes to wage growth) and yet the most important economic figure that markets look at on a monthly basis. Various indicators point to the likelihood of another strong report come Friday that should accelerate recent trends in markets – more gains in the stock market (with a helping of the “this means the Fed is going to cut us off from the punch bowl blah-blah” stuff) and more strength in the dollar, regardless of whatever incipient gains the euro can muster after the European Central Bank meeting.
Underlying indicators to watch suggest that the U.S. economy has started to move more dramatically higher, whether it’s from the Federal Reserve’s Beige Book or Goldman Sachs’ analyst indicator, a composite of analyst commentary that functions as sort of a “corporate Beige Book.”
Some of the striking data out of this include better-than-expected strength in the consumer spending area, where Goldman expects consumption to rise to about 2.5 to 3 percent over the rest of the year. Their index is above 60 now for the fourth month running – like the ISM data, 50 signals growth – and they’re seeing particularly good strength in new orders and sales/shipments, also pointing to better demand.
That should translate once again to more hiring as the economy moves into the middle of this expansion, one that didn’t see the post-recession pop that many expected and instead as a substitute has put together a long, grinding string of more than 60 months of steady but unspectacular growth.
With the recent shift in jobless claims to a consistent figure around 300,000 on a weekly basis – and sometimes lower – and consumer confidence rebounding, the key figure to watch on Friday is probably again the U-6 figure on labor force underutilization, the broader measure of unemployment the Fed likes to look at rather than just the unemployment figure itself. Since the beginning of 2013, as the regular unemployment rate has dropped to 6.2 percent from 7.9 percent, the U-6 rate has dropped more sharply to 12.2 percent from 14.4 percent. The number of unemployed has dropped to 9.67 million from 12.32 million in that time. The labor force has been stubbornly stagnant, rising to 156.02 million from 155.69 million in Jan. 2013, and so the participation rate hasn’t budged all that much – it’s actually fallen to 62.9 percent from 63.6 percent, and the inability of people to get back into the labor force because they’re discouraged has been an Achilles heel for the jobs market since this recession ended.
There’s some hope this is changing, again, based on consumer confidence figures and manufacturing and service-sector surveys pointing to improved demand and confidence. And the Fed’s Beige Book pointed to specific job shortages – tech workers in the Boston region, truck drivers in New York – but still yet not enough to really suggest the increase in demand that brings out 300,000-plus jobs reports every month. For August, the expectation is for about 225,000 in nonfarm payrolls growth, and for earnings to rise 0.2 percent on the month.